Economic Reform: View from METI

The most spectacular change in the global economic theater is the Japanese economy. The economy, which was about to dominate the global market a decade ago, now seems to have lost its strength completely with no sign of recovery in sight. Since the middle of the 1980s, the development of IT and globalization created two fundamental changes, namely the development of a powerful global market, and the evolution of the new process by which value was created. During this time period, the yen appreciated sharply and suddenly. However, these changes were not well recognized because of the bubble economy. While these changes require fundamental change of economic structure, Japan was slow in responding to these changes. In the meantime, international deflationary pressures made this even more difficult, and a demographic change -- the inversion of the age pyramid in the structure of the national population -- was having an increasingly negative impact on economic activity. In this paper I focus on the new economic reality Japan faces and the four key issues Japan must address while moving towards economic reform. These issues are: new management in the global competitive market; change in the "value creation" paradigm; the problem of deflation; and the Koizumi cabinet and reform of the decision-making process